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IFRS Impact on Certification of Internal Controls


Public issuers will be required to adopt IFRS for financial years commencing on or after January 1, 2011 with 2010 comparative IFRS figures. The transition to IFRS is expected to result in significant changes to the financial reporting process (e.g., how financial reporting information is captured, processed and reported) of issuers. As new accounting policies are adopted, management will need to design and implement new internal controls over financial reporting processes impacted by IFRS.

  • We recommend that the compliance procedures noted below be actioned in 2010 to maintain effective disclosure controls & procedures (DC&P) and ICFR in accordance with National Instrument 52-109 during the conversion process.
  • Re-scope significant financial reporting elements (e.g., accounts, disclosures, assertions, locations and processes) using pro-forma IFRS financial statements considering changes to qualitative risk factors such as susceptibility to error and fraud, complexity and extent of professional judgment.
  • Document the flow of transactions for newly designed and implemented financial reporting processes and related internal controls.
  • Perform a risk assessment for each significant business process impacted by IFRS to identify new financial reporting risks, key controls addressing these risks and any internal control gaps for remediation.
  • Evaluate the design effectiveness of newly designed and implemented internal controls to support the 2010 comparative IFRS figures and 2011 interim certificates related to interim financial statements prepared under IFRS. Management will be required to certify on the design of ICFR in the first quarter of 2011.
  • Perform operating effectiveness testing on a limited sample size basis to enable early detection and remediation of deficiencies. Full operating effectiveness testing should be performed during 2011 to support the 2011 annual certificates related to year end IFRS financial statements.
  • Evaluate the effectiveness of DC&P to ensure reliable and timely IFRS disclosures in the MD&A. Certifying officers will be required to certify on the design of DC&P in the 2010 certificates.
  • Provide adequate IFRS training to management, the Board of Directors and the Audit Committee to identify key IFRS differences and to facilitate consistent application of new accounting policies and operation of ICFR.

Note that these compliance procedures should be performed in addition to the compliance program already established for existing processes and controls supporting Canadian GAAP financials as most issuers will maintain two parallel financial reporting processes in 2010.

Companies that act now will be in a better position to maintain effective internal controls through the IFRS transition and be able to certify on the effectiveness of DC&P and ICFR with confidence.